Freddie Mac 2011 Annual Report Download - page 214

As a result, we have concluded that we are not the primary beneficiary of, and therefore do not consolidate, the
resecuritization trusts used for REMICs and Other Structured Securities whose underlying assets are PCs unless we hold
substantially all of the outstanding beneficial interests that have been issued by the trust and are therefore considered the
primary beneficiary of the trust.
We receive a transaction fee from third parties for issuing REMICs and Other Structured Securities in exchange for
PCs or other mortgage-related assets. We defer the portion of the transaction fee that is equal to the estimated value of
our future administrative responsibilities for issued REMICs and Other Structured Securities. These responsibilities
include ongoing trustee services, administration of pass-through amounts, paying agent services, tax reporting, and other
required services. We estimate the value of these future responsibilities based on quotes from third-party vendors who
perform each type of service and, where quotes are not available, based on our estimates of what those vendors would
charge. The remaining portion of the transaction fee relates to compensation earned in connection with structuring-related
services we rendered to third parties and is allocated between REMICs and Other Structured Securities we retain, if any,
and the REMICs and Other Structured Securities acquired by third parties, based on the relative fair value of the
securities. The portion of the fee allocated to any REMICs and Other Structured Securities we retain is deferred as a
carrying value adjustment and is amortized into interest income using the effective interest method over the contractual
lives of these securities. The fee allocated to REMICs and Other Structured Securities acquired by third parties is
recognized immediately in earnings as other income.
Other Guarantee Transactions
Other Guarantee Transactions are mortgage-related securities that we issue to third parties in exchange for non-
Freddie Mac mortgage-related securities. Other Guarantee Transactions typically involve us purchasing either the senior
tranches from a non-Freddie Mac senior-subordinated securitization or single-class pass-through securities, placing the
acquired assets into a securitization trust, providing a guarantee of the principal and interest of the acquired assets and
issuing securities backed by these assets. To the extent that we are deemed to be the primary beneficiary of such a
securitization trust, we recognize the mortgage loans underlying the Other Guarantee Transaction as mortgage loans held-
for-investment, at amortized cost. Correspondingly, we recognize the issued securities held by third parties as debt
securities of consolidated trusts. However, to the extent we are not deemed to be the primary beneficiary of such a
securitization trust, we recognize a guarantee asset, to the extent a management and guarantee fee is charged, and we
recognize a guarantee obligation at fair value. We do not receive transaction fees, apart from our management and
guarantee fee, for these transactions.
Purchases and Sales of Freddie Mac Mortgage-Related Securities
PCs
When we purchase PCs that have been issued by consolidated PC trusts, we extinguish the outstanding debt
securities of the related consolidated trust. We recognize a gain (loss) on extinguishment of the debt securities to the
extent the amount paid to redeem the debt differs from carrying value, adjusted for any related purchase commitments
accounted for as derivatives.
When we sell PCs that have been issued by consolidated PC trusts, we recognize a liability to the third-party
beneficial interest holders of the related consolidated trust as debt securities of consolidated trusts held by third parties.
That is, our sale of PCs issued by consolidated PC trusts is accounted for as the issuance of debt, not as the sale of
investment securities.
Single-Class REMICs and Other Structured Securities
Our mortgage-related securities that we classify as REMICs and Other Structured Securities may be single-class or
multiclass resecuritization transactions. In REMICs and Other Structured Securities that are single-class securities, the
collateral includes PCs and single-class REMICs and Other Structured Securities. We do not consolidate these
resecuritization trusts as we are not deemed to be the primary beneficiary of such trusts. Our single-class REMICs and
Other Structured Securities pass through all of the cash flows of the underlying PCs directly to the holders of the
securities and are deemed to be substantially the same as the underlying PCs. As a result, when we purchase single-
class REMICs and Other Structured Securities, we extinguish a pro rata portion of the outstanding debt securities of the
related PC trust on our consolidated balance sheets.
When we sell single-class REMICs and Other Structured Securities, we recognize a liability to the third-party
beneficial interest holders of the related consolidated PC trust as debt securities of consolidated trusts held by third
209 Freddie Mac